Chapter 11

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School

McMaster University

Department

Economics

Course

ECON 1B03

Professor

Usman Hannan

Semester

Fall

Description

CHAPTER 11: PUBLIC GOODS AND COMMON RESOURCES
The Different Kinds of Goods
There are 2 characteristics:
1. excludability: a person can be prevented from using it
2. rival in consumption: one person’s use diminishes other people’s use
Categories:
1. Private Goods - excludable and rival in consumption (i.e. an ice cream cone; I can just not give it to
you, or if I eat it you cannot eat it as well. Other examples include clothing, congested toll roads)
2. Public Goods – neither excludable or rival in consumption (i.e. you cannot prevent me from using a
park, but if I use the park it does not mean that you no longer can. Other examples include national
defense, uncongested non-toll roads, tornado siren)
3. Common Resources – rival in consumption (i.e. if I catch a fish from the ocean there is one less fish for
you to catch, but you cannot prevent me from catching it as the ocean is so vast. Other examples include
the environment, congested non-toll roads)
4. Natural Monopoly – excludable (i.e. if the firefighters do not want to come save your house from
burning down they do not have to, but there are enough supplies for them to save multiple houses.
Other examples include cable TV, uncongested toll roads)
Public Goods
The Free-Rider Problem
- free rider: a person who receives the benefit of a good but avoids paying for it (i.e. I can watch
fireworks from my house instead of paying to watch them)
- may be socially desirable but not privately profitable
- prevents private market from supplying these goods, therefore government can by using tax revenue
Some Important Public Goods
National Defence
- federal government supplies this good
Basic Research
- to